How Is the Degree of Operating Leverage Calculated

question 31

Multiple Choice

How is the degree of operating leverage calculated?

• A) Contribution margin divided by sales.
• B) Gross margin divided by operating income.
• C) Operating income divided by sales.
• D) Contribution margin divided by operating income.

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Definitions:

Risk of Obsolescence

The potential for a product or technology to become outdated or less valuable due to advancements in technology, changes in consumer preferences, or market developments.

Executory Costs

Costs associated with maintaining and operating leased property, such as insurance, maintenance, and taxes, often shared by lessee and lessor.

Lease Transaction

An agreement where a lessor allows a lessee to use an asset in exchange for payment over a predetermined period.

Capital Lease

A lease classified as an asset purchase for accounting purposes, where the lessee assumes some of the risks and benefits of ownership.